Procurement Risk Assessment and Management for the Representative Subprojects

Transcription

1 Air Quality Improvement in the Greater Beijing Tianjin Hebei Region China National Investment and Guaranty Corporation s Green Financing Platform Project (RRP PRC 50096) Procurement Risk Assessment and Management for the Representative Subprojects Project Number: vember 2016 People s Republic of China: Air Quality Improvement in the Greater Beijing Tianjin Hebei Region China National Investment and Guaranty Corporation s Green Financing Platform Project

2 Table of Content Executive Summary I. Project Background... 1 II. PROJECT PROCUREMENT ASSESSMENT... 1 A. Overview... 1 B. Organizational and Staff Capacity... 3 C. Information Management Systems... 4 D. Procurement Practices Works and Goods... 4 E. Effectiveness... 7 F. Accountability Measures... 8 III. STRENGTHS... 8 IV. WEAKNESSES... 9 V. PROCUREMENT ASSESSMENT AND MANAGEMENT PLAN (P-RAMP)... 9 VI. Conclusions Assessment results The overall procurement risk assessment Appendix 1: Procurement Capacity Checklist Appendix 2: Procurement Capacity Checklist for Zhongyineng (.1 in the Table 1) Appendix 3: Procurement Capacity Checklist for Kaidi (.2 in The Table 1) Appendix 4: Procurement Capacity Checklist for Zhongjing (.3 in the Table 1) Appendix 5: Procurement Capacity Checklist for Beijing Luzhou Dehan Environmental Protection Center Co., Ltd (.4 In The Table 1) Appendix 6: Procurement Capacity Checklist for Tsinghua Solar Energy (.6 in the Table 1) Appendix 7: Procurement Capacity Checklist for Zhonghui Yuanjing (.7 in the Table 1) Appendix 8: Procurement Capacity Checklist for Yantai Longjun Wind Energy Development Corporation (.8 in the Table 1) Appendix 9: Procurement Capacity Checklist for Beijing Energy-saving Science and Technology Co. Ltd (.9 in The Table 1) Appendix 10: Procurement Capacity Checklist for Beijing Energy-saving Science and Technology Co. Ltd (.10 In The Table 1) Appendix 11: Procurement Capacity Checklist for Huanhui (.11 in the Table 1)... 38

3 EXECUTIVE SUMMARY 1. The overall procurement risk assessment is to. Strengths Identified: (i) Eight out of 10 assessed subborrowers have existing procurement departments consisting of a number of full time staff with adequate background and practical experiences, especially for their previous and existing projects or operation. (ii) All assessed subborrowers have procurement regulations and procedures based on the Tendering and Bidding Law (TBL) with integration of their own practices and requirements, except for Yantai Longjun (. 8 in Table 1); (iii) Six out of 10 assessed potential subborrowers have established the procurement referencing systems to manage procurement files and contract implementation records; (iv) All assessed subborrowers are more experienced with procurement in civil works, equipment, and materials; (v) The contractual performances were monitored by all potential subborrowers, especially the payment related progress is monitored or checked strictly or less according to the natures of procurement contents; and (vi) An ethical standard for the procurement department has been set up in seven out of 10 assessed subborrowers, together with the annual internal compliance review system. Weaknesses Identified: (i) All assessed subborrowers don t have experience with Asian Development Bank (ADB) project implementation and management, and are not familiar with ADB s procurement principles and regulations; (ii) Privately owned enterprises (POEs) often follow commercial practices during the procurement process, instead of the TBL though open and transparent process claimed by each of them. ne of them advertise or disclose evaluation criteria, which are emphasized by ADB as key procurement principles of open competition and transparency; (iii) Human resources of subborrowers may not be adequate for compliance with additional ADB reporting and monitoring requirements for procurement,. 3: Zhonghui Yuanjing has only two staff in the procurement division. (iv) Luzhou Dehan (. 4 in Table 1) and Yantai Longjun (. 8 in Table 1) do not have procurement departments in its company, all the procurement activities in these two companies are carried out by individual divisions based on their needs; (v) Three assessed subborrowers (Zhongyineng [.1]; Yantai Longjun [.8]; and TSINOVA Smart [. 9] in Table 1) have not yet established the ethical standard in their companies. Summary of Mitigation/Management Measures to be adopted: (i) A Procurement Manual has been prepared for all subborrowers, to ensure that all procurement activities are implemented in a timely and efficient manner in accordance with ADB s procurement principles, as well as the People s Republic of China (PRC) government s regulations on foreign capital utilization projects. For example, all procurements activities by subprojects shall follow key provisions of TBL, such as (i) open soliciting of bids, (ii) transparent bid evaluation, and (iii) record keeping, as the minimal requirements;

4 (ii) (iii) (iv) (v) (vi) According to national regulations of foreign capital utilization, all the foreign fund supported projects in the PRC are obligated to be audited by the auditing offices (in random selected way). Under this project, the National Auditing Office will be authorized to be responsible for the annual auditing. It is proposed to notify, through trainings, all subborrowers the requirements of audit before the procurements by subborrowers; It is important for ADB, as well as China National Investment and Guaranty Corporation (I&G), to monitor and supervise the procurements activities by subprojects on a daily or regular basis to ensure that all procurement activities are implemented in an appropriate way in accordance with ADB s key procurement principles, as well as requirements of the PRC Government; Enough human resources (qualified professional staff) for the procurement division in the subborrowers shall be allocated; The procurement staff of subprojects involved with project delivery should receive capacity building on ADB and the PRC Government s requirements for procurement and contract management, but also on financial management, which is the most relevant of procurement, and etc.; and For I&G, if necessary, and those subprojects without ADB project implementation and management experiences, it is suggested to recruit (jointly, if possible) a consultant, which has relevant experiences of ADB project managements, to guide or provide advices during the project implementation, including planning, procurements, contracts management, financial management, reporting and others related.

5 I. PROJECT BACKGROUND 1. The government has requested a loan of 458 million from Asian Development Bank s (ADB) ordinary capital resources to help finance the project through an ADB financial intermediation loan (FIL), which will establish a dedicated green financing platform (GFP) for the greater Beijing Tianjin Hebei (BTH) region. 1 The BTH dedicated GFP will leverage financing and scale-up investments in green and low emission development with a focus on small and medium sized enterprises (SMEs). Some, targeted support will be provided to large enterprises. 2 The proposed project will directly contribute to air quality improvements, inclusive and environmentally sustainable economic growth, private sector development, and climate change mitigation in the BTH region. 2. China National Investment and Guaranty Corporation (I&G) will act as executing and implementing agencies of the project. I&G will make independent decisions based on the technical merit, credit quality, environmental due diligence, and agreed subproject selection criteria to finance a particular subproject, and they will assume the full credit risk of the financed subprojects. 3. According to the ADB s Operations Manual for FIL project, ADB does not insist on international competitive bidding procedures for procurement under FIL-financed subprojects, but encourages such use where (i) the amount of a subproject investment is unusually large, and (ii) the procedures foster economy and efficiency. ADB requires financial intermediaries to ensure, through suitable monitoring mechanisms, that subborrowers adopt and implement appropriate procurement procedures for subprojects. ADB expects that for FILs, the procurement is undertaken by the respective loan beneficiaries in accordance with established private sector or commercial practices, and which are acceptable to ADB. 4. Under the project, most of the procurement under the program will be carried out by the subproject borrowers. These will be mostly SMEs either privately owned enterprises (POEs) or state owned enterprises (SOEs). It is understood that SOEs should comply with the provisions of the Tendering and Bidding Law (TBL) while there are no specific procurement laws that POEs should follow, and therefore, POEs are free to adopt whatever practices they deem commercially sound. As ADB procurement principles, as well as the PRC procurement laws, require the procurement of subprojects to be undertaken using a competitive and transparent process, it is important to assess the procurement capacity of the potential subborrowers to identify procurement risks and propose mitigation measures to ensure that all procurement activities are implemented in a timely and efficient manner in accordance with ADB s key procurement principles, as well as requirements of the PRC government. II. PROJECT PROCUREMENT ASSESSMENT A. Overview 5. The procurement assessment work for the representative subprojects (Table 1) and its subborrowers had been conducted through a questionnaire survey and phone call discussion with subborrowers from 18 August to 31 October 2016, and 10 questionnaires have been collected (information and risk assessment results are listed in Appendix 2-11). 1 The greater Beijing Tianjin Hebei region (referred to as BTH region) includes Beijing and Tianjin municipalities; Hebei, Henan, Shandong, Shanxi and Liaoning provinces; and Inner Mongolia Autonomous Region. 2 For industrial sector, enterprises with less than 1,000 employees and total asset of CNY400 million are SMEs.

6 2 Table 1: Indicative Representative Subprojects. Focused Area Borrower Project Name Ownership Results Waste Heat Huludao Zinc Plant to 1 Capture and Zhongyineng (ESCO) POE Baotou Steel Plant Delivery Kaidi Ecological Agriculture Hebei Pingxiang Biomass 2 Environment POE Waste Utilization Plant Technology Co., Ltd Emission Reduction Distributed energy Energy Efficiency and Emission Reduction Renewable Energy 7 ESCO 8 Renewable Energy 9 Green Transport 10 Energy Efficiency 11 Waste Heat Capture and Delivery Beijing Zhongjing (ESCO) Beijing Luzhou Dehan (ESCO) Beijing Guozi Financial Leasing Co., Ltd.* Beijing Qidi Clean Energy Co., Ltd. Zhonghui Yuanjing (ESCO) Yantai Longjun Wind Energy Development Corporation Beijing TSINOVA Smart Beijing Energy-saving Science and Technology Co., Ltd. Huanhui Technology Group Com (ESCO) Desulfurization, DeNOx, Dedust equipment (Tianjin) Desulfurization, DeNOx, Dedust equipment (Shanxi) Distributed Energy System for Shilong Economic Development Park POE POE to Green leasing SOE NA Shijiazhuang Zhengding District Energy Service Project Building Energy Efficiency Improvement Yantai Longjun Wind Power Plant POE POE POE to to High R&D of E-bike POE R&D of Energy Saving Equipment Xuanhua District Heating POE POE to ESCO = Energy Service Company, DeNOx = denitrification, NA = t Applicable, PCAQ = Procurement Capacity Assessment Questionnaire, POE = Private Owned Enterprise, R&D = Research and Development, SOE = State Owned Enterprise. * A PCA is requested to a subborrower of the green leasing company but not to itself. Sources: I&G provided and PPTA consultant assessed, vember National TBL and ADB Principles. The legal and institutional system for procurement, especially procurement by SOEs and procurement using foreign capital fund, in the PRC is established. For the principles of procurement, openness, fairness, impartiality, as well as faithfulness and trustworthiness, are clearly stated in the TBL (Adopted by the 11th Meeting of the Standing Committee of the Ninth National People's Congress on August 30, 1999, promulgated by order.21 of the President of People's Republic of China on August 30, 1999, and effective as of January 1, 2000), while ADB s key principles of procurement are open competition, economy, efficiency, fairness, and transparency. Although there are some details in the central government s regulations, like Implementation regulations of TBL, (Adopted by the 183th Executive Meeting of the State Council on vember 30, 2011, and effective as of February 1, 2012), are not exactly same as ADB procurement guideline, the substantial contents and procedures are likely consistent with each other. The foreign capital utilization projects are subject to audits, which will be carried out by an independent national government organization with a strict ethical code according to tice on Improving Management of International Financial Institution Financed Project (NDRC, Foreign Capital.1269 [2008]). 7. Indicative representative subprojects and assessed enterprises. 13 indicative representative subprojects proposed by 11 developers (as potential subborrowers) were

7 screened jointly by ADB and I&G according to the selection criteria (Appendix 2 of the Project Administrative Manual). 8. By 31 October 2016, feedback from all representative subprojects was received, based on which this assessment is prepared. All assessed enterprises are POEs. They follow their own procurement practices, the main findings are described as follows. 9. The assessment covered five areas: (1) Organization and Staff Capacity; (2) Information Management 3) Procurement Practices; (4) Effectiveness; and (5) Accountability Measures, are as follows. The questionnaires completed by each potential subborrower are attached in Appendix B. Organizational and Staff Capacity All assessed subborrowers have the permanent procurement departments, except Luzhou Dehan (.4) and Yantai Longjun (.8), consisting of a number of full time staff with adequate background and practical experiences, especially for their previous and existing projects or operation. The director/chief of the department is usually a mid-level manager or the key responsible decision maker of the company, in some companies, such as Luzhou Dehan (. 4), the General Manager is directly in charge of the procurement activities; For POEs, it is quite risky that the staff s experiences and qualification are not sufficient to undertake procurement under proposed subproject without experienced staff, the risk for Yantai Longjun (. 8) is high with no procurement staff, the procurement activities were done by the Board, Zhonghui Yuanjing (. 7) is moderate with only two procurement staff while all others consider as low risk in staff capacity; POEs often follow commercial practices with their own procedures during the procurement, while two SOEs follow national TBL. Table 2: Summary of feedback by each question for the organizational and staff capacity Questions Summary of feedback A.1 Is there a permanent All assessed subborrowers have the permanent procurement properly staffed procurement departments, except Luzhou Dehan (. 4) and Yantai Longjun (. unit in the IA? 8). Most of the head of the procurement unit have a minimum 5 years experience, together with several procurement staff. For example: As the strongest staff: Kaidi (. 2 has 16 procurement staff, five staff for equipment technical monitoring, six staff for civil work tendering, four administrative staff, and two chief leaders and the chief leaders have a minimum 10 year experience. Yantai Longjun (. 8) has no procurement staff, and Zhonghui Yuanjing (. 7) has two procurement staff and manager (also the Assistant to General Manager) has 5 years experience and other A.2 Is qualification of procurement staff sufficient to undertake the procurement under the proposed project? A.3 Does the procurement unit undertake procurement in accordance commercial practices in the sector? also has 5 years experience. All assessed subborrowers claimed their procurement staffs have adequate experiences and background. All assessed subborrowers undertake procurement in accordance with commercial practices using open competition. 3

8 4 Questions Summary of feedback A.4 Do the commercial All assessed subborrowers claimed that they conduct their practices comply with requirements of national and provincial procurement laws and regulations? procurement practices comply with requirements of national and provincial procurement laws and regulations, all assessed subborrowers developed Procurement Implementation Guidelines except Yantai Longjun (.8 in Table 1). Sources: PPTA consultant assessed and summarized, vember C. Information Management Systems All assessed POEs have policies or management methods on procurement records and files, including adequate responsible staff to administer the document management functions; Nine out of 10 assessed POEs are keeping both hard copy and/or electronic files. Yantai Longjun (. 8) is the exception, which keeps only the hard copies for long-term. For the retention policy, all assessed POEs will keep records for a long period, like 5 10 years or even longer period. For the referencing system, six out of 10 assessed POEs have comprehensive referencing system managing by the records list in excel file, and also contract referencing in ledger as per category (such as contract, bidding documents, planning, etc.). Zhongyineng (. 1), Qidi Clean Energy (. 6), Yantai Longjun (. 8) and Beijing Energy-saving (. 10) have no referencing system; All assessed POEs confirmed that for the types of files or documents kept, they all adopt one folder for one project, including those of from preparation of bidding, advertisement, enquiry/tendering & bidding, evaluation, negotiation and contract award, delivering records, and payments. Table 3: Summary of feedback by each question for the information management systems Questions Summary of feedback B.1 Is there a referencing Six out of 10 have referencing systems. Zhongyineng (. 1), Qidi system for procurement files in the company? Clean Energy (. 6), Yantai Longjun (. 8), and Beijing Energy-saving (. 10) do not have referencing system. All assessed subborrowers keep files both in e-file and hard copies, B.2 Is there adequate equipment and personnel to administer the procurement records management functions? B.3 Does the procurement unit adhere to a document retention policy (i.e., for what period are records kept)? B.4 Is there a single contract file with a copy of contracts and all subsequent contractual correspondence? Sources: PPTA consultant assessed and summarized, vember except Yantai Longjun (. 8) who keeps files only in hard copies. All have responsible staff and equipment to administer the procurement records, either in Procurement Unit or Archive Department or Administrative Office. All confirmed have retention policy, of which, Zhongjing (. 3), Luzhou Dehan (. 4), Yantai Longjun (. 8), and Huanhui (. 11) keep those files for long term; while others keep for 5 10 years. TSINOVA Smart (. 9) keeps in shortest period for 3 years. All confirmed that they have single contract folder for all subsequent contractual correspondences under the contract. D. Procurement Practices Works and Goods 10. The procurement practices by SOEs and POEs are different, and will be described separately as follows.

9 5 1. General description 11. SOEs, as required, have to follow the TBL. The key procedures include: (1) advertising on a public press or official gazette, and a website for usually at least 15 days; (2) being responded by at least 3 bidders. If less than 3 bidders, the tendering will be considered as failed, and will restart the tendering process; (3) the evaluation committee will be established usually consisting of 5 or more odd number experts for bidding evaluation; and (4) the result of winner will be published before issuing the negotiated contract. 12. For bidding evaluation criteria, the combination of technical and financial evaluation is applied, usually price factor, or financial evaluation is weighed half, while others weigh the remaining half to include technical, delivering time, payment terms, etc. As a result, sometimes, the lowest bidder which is also qualified technically may not win. 13. Additionally, the bidding agent will be recruited to be involved in the whole tendering and bidding procedures to ensure fairness and professionalism. 14. POEs don t need to follow the TBL when they undertake procurement. They prefer inviting to bid or inquiry, instead of calling for bidders openly. Only one POE has experience of bidding process for a specific procurement of equipment. Usually, they selected and decided partners from suppliers or contractors they are familiar with, and as common practice, where they pay more attention to the price, as well as if previous cooperation experiences are successful and satisfied. The company s responsible manager or decision maker will play a very important role to decide winner as supplier or contractor. 15. POEs usually don t hire bidding agent to assist in their procurement. 2. Narratives on key procedures 16. Since advertising for bids, bidding documents used, and bid evaluation are the key procedures of procurement, the narratives are as follows by SOEs and POEs separately. (i) Advertising for bids 17. SOEs will advertise for bids in a couple of appointed websites for tendering and bidding for at least 15 days. 18. POEs will not advertise ordinarily, and will inquire instead, which will heavily rely on experiences and skills of procurement staff, and reputation of partners as suppliers or contractors. rmally, procurement staff will send inquiry to the potential suppliers they are familiar with, and compare and select the most cost-efficient goods. For the newly procured goods, they will firstly collect information on suppliers from their networks before inquire, negotiate or bargain, evaluate, and finally decide the most suitable suppliers. (ii) Bidding documents used 19. SOEs are required to prepare a series of documents for the whole bidding process, including pre-qualification, bidder prequalification materials, call for tendering, bidding document and its supplement Q&A, acceptance of tender documents, minute of tender opening, preliminary evaluation, clarification requirement, clarification minute, bid evaluation, decision of

10 6 winner, issue notice of bidding winner, contract negotiation, and contract signing. The documents are usually prepared and completed by or with assistance of the qualified bidding agent assigned. 20. POEs don t have fixed bidding documents, and different companies have their own documents in according to their procurement practices. As they have set up their own management systems for bidding documents, price difference and result of bargaining are the most important documents to be kept. (iii) Bid evaluation 21. SOEs undertake bid evaluation by evaluation committee, the members of which are selected randomly, for some large projects, the evaluation committee members were selected randomly from an expertise database appointed by the government authorities. The evaluation committee will evaluate comprehensively from aspects of qualifications, manufacturing capacity, capabilities and credibility as required in bidding documents. As a common practice, the qualified bidding agent will implement or assist the whole process. 22. The evaluation report with the recommended selection will be submitted to the company s management, and usually, the evaluation result from the committee will be the final decision. 23. Six out of 10 assessed POEs undertake the evaluation more simply, the procurement staff will prepare a price comparison report in according to the market prices, and recommend the winner according to the comparing price and negotiated or bargained price, and the report with the recommended selection will be submitted to the responsible managers or president for approval. For procurement with a high contract value, a procurement evaluation group will be set-up consisting of responsible managers from relevant departments or key technical staff, the group will determine suitable suppliers, contract volume and terms for the president s final decision. (iv) Procurement experiences for large projects 24. All assessed companies have procurement experiences, and have qualified staff with professional background, such as engineering management. (v) Procurement manual 25. All assessed subborrowers have procurement manuals, in which the guidelines on selection of the suppliers, contract negotiation, tracking of the contract implementation, etc., are included. Table 4: Summary of feedback by each question for the procurement practices Questions Summary of feedback C.1 Does the procurement unit Six out of 10 assessed POEs have the procurement manual. have a manual for procurement of goods and works? Qidi Clean Energy (. 6) has no procurement manual for works as the company does not involve procurement activities for civil works; Yantai Longjun (. 8), TSINOVA Smart (. 9), and Beijing Energy-saving (. 10) have no procurement manual, their bids are subject to approval by higher authorities in the companies.

11 7 Questions C.2 Is there a bid evaluation committee (permanent or ad-hoc) established within the IA? C.3 Is the decision of a bid evaluation committee final or subject to approval by higher authorities within the IA? C.4 Do the commercial practices applied by the IA comply with key procurement principles of open competition, economy, efficiency, fairness and transparency? Sources: PPTA consultant assessed and summarized, vember E. Effectiveness Summary of feedback One company has permanent evaluation committee - Zhongjing (. 3) Three have temporary evaluation committee based on the procurement contents: Zhongyineng (.1) Kaidi (. 2) Luzhou Dehan (. 4) Qidi Clean Energy (. 6) Zhonghui Yuanjing (.7) Huanhui. (. 11) Three companies use the result from evaluation committee as final decision: Zhongyineng (.1) Kaidi (. 2) Zhongjing (. 3) All other companies will report to responsible manager or president for final decision. All assessed companies claimed that they are complying with key procurement principles of open competition, economy, efficiency, fairness and transparency. (i) (ii) (iii) (iv) All the assessed companies have methods to monitor the implementation of the contracts. To this end, many of them manage the contracts through their management system, while a few others follow their own procurement regulations to check contracts implementing from time to time. Usually procurement department will also monitor the contract implementing and progress before the payment occurred. The Finance Center is also involved in the process periodically to ensure that payment is made in an appropriate or reasonable manner. Nine out of 10 assessed POEs have the complaints resolution mechanism in the procurement process if there is bidding document to be prepared by the company. Furthermore, it also has descriptions concerning the complaints resolution options could always be found in the contract, which stipulate that (a) concerned parties shall, in the first instance, resolve issues through friendly consultations; and (b) if it s not resolved, then concerned parties resort to the court for arbitration. Table 5: Summary of feedback by each question for the effectiveness Questions Summary of feedback All claimed that contractual performance is systematically monitored and reported. D.1. Is contractual performance systematically monitored and reported? D.2. Does the agency monitor and track its contractual payment obligations? D.3. Is a complaints resolution mechanism described in national All confirmed that they monitor and track its contractual payment obligations..7 Zhongjing confirmed that both procurement department and financial department will do so jointly. All except TAINOVA smart (. 9) claimed that in the contract terms, complaints resolution mechanism will be included.

12 8 procurement documents? Questions Summary of feedback D.4. Is there a formal non-judicial All except Zhongyineng (.1) and Yantai Longjun (. 8) mechanism for dealing with confirmed that there is a formal non-judicial mechanism for dealing complaints? with complaints. Sources: PPTA consultant assessed and summarized, vember F. Accountability Measures Seven out of 10 assessed POEs confirmed that a set of procurement regulations and written declarations are required for the procurement staff to follow, which includes not only the integrity and ethic standard, but also the commitment of self-discipline during the procurement process. Some entities request the procurement staff to sign copies of declarations to avoid fraud and conflict of interest during the procurement process. In addition, strict penalty and punishment measures are informed within some companies. Annual internal compliance review system for the procurement department is established within all assessed companies strictly or less. All assessed POEs conduct review internally. Two assessed companies confirmed to review all the contracts, while the other two companies review contracts randomly. Table 6: Summary of feedback by each question for the accountability measures Questions Summary of feedback E.1 Is there a standard statement of Seven out of 10 POEs confirmed this. ethics to which the procurement unit is Zhongyineng (. 1), Yantai Longjun (. 8) and TSINOVA required to formally commit? Smart (. 9) have no standard statement of ethics to which the E.2 Are staff of the procurement unit required to declare any potential integrity violations during the procurement process? E.3 Is the performance of the procurement unit subject to annual audit? Sources: PPTA consultant assessed and summarized, vember procurement unit is required to formally commit. Seven out of 10 POEs confirmed this. Zhongyineng (. 1), Yantai Longjun (. 8) and TSINOVA Smart (. 9) have no such formal requirement so far. All except Yantai Longjun (. 8) and TSINOVA Smart (.9) confirmed annual internal compliance review system for the procurement unit and reviewing all key projects. III. STRENGTHS (i) (ii) (iii) (iv) Eight out of 10 assessed potential subborrowers have permanent procurement departments consisting of a number of full time staff with adequate background and practical experiences, especially for their previous and existing projects or operation. All assessed potential subborrowers have procurement regulations and procedures based on the TBL with integration of their own practices and requirements, except Yantai Longjun (. 8); Six out of 10 assessed potential subborrowers have established the procurement referencing systems to manage procurement files and contract implementation records; All assessed potential subborrowers are more experienced with procurement in civil works, equipment and materials;

13 9 (v) (vi) The contractual performances were monitored by all potential subborrowers, especially the payment related progress is monitored or checked strictly or less according to the natures of procurement contents; and An ethical standard for the procurement department has been set up in seven out of ten assessed potential subborrowers, together with the annual internal compliance review system. (i) (ii) (iii) (iv) IV. WEAKNESSES All assessed potential subborrowers don t have experience of ADB project implementation and management, and are not familiar with ADB s procurement principles and regulations; POEs often follow commercial practices during the procurement process, instead of the TBL though open and transparent process claimed by each of them. ne of them advertise or disclose evaluation criteria, which are emphasized by ADB as key procurement principles of open competition and transparency; and Human resources of subborrowers may not be adequate for compliance with additional ADB reporting and monitoring requirements for procurement,. 3: Zhonghui Yuanjing has only two staff in the procurement division. Luzhou Dehan (. 4) and Yantai Longjun (. 8) have no procurement department in its company, all the procurement activities in these two companies are carried out by the individual divisions based on their needs; (v) Three assessed subborrowers (Zhongyineng.1; Yantai Longjun. 8; TSINOVA Smart. 9) have not yet established the ethical standard in their companies. V. PROCUREMENT ASSESSMENT AND MANAGEMENT PLAN (P-RAMP) 26. Based on the above mentioned weaknesses, although not applicable for all potential subborrowers, the possible risks are identified and described, and the mitigation measures are proposed correspondingly in Table 7. Table 7: Risk Assessment and Management Plan Risk Description Mitigation Measures or Risk Management Plan Hire qualified procurement staff with professional background Number of procurement staff may not meet the needs of procurement activities for the subproject Procurement through commercial practice doesn t advertise on the public media, which is not applying to opening principle Procurement through commercial practice doesn t have an integrated criterion or the bid evaluation is not transparent, and may vary based on past experience and practices. Lack of experience in corresponding to audit requirement; Little is known regarding work procedures of the audit and focus areas Sources: PPTA consultant assessed and summarized, vember Require subborrowers to advertise on public media locally at least Train subborrowers on project management Hire experienced consultant/firm to provide advice on evaluation criteria determined before procurement Train subborrowers on procurement and financial management, so as to improve their understanding of the requirements and principles of audit Hire experienced consultant/firm to provide advice on preparation for audit

14 10 1. Assessment results (i). VI. CONCLUSIONS The procurement risk assessment for two of 10 assessed POEs (. 2 Kaidi and. 3 Zhongjing) is rated low based on their suitable organization and adequate staff capacity, appropriate information management system and procurement mechanism; (ii) The procurement risk assessment for the four assessed POEs (. 1 Zhongyineng,. 4 Luzhou Dehan,. 6 Qidi Clean Energy and. 11 Huanhui) is rated low to moderate, due to their suitable organization and adequate staff capacity, appropriate information management system and procurement mechanism, but lack of sufficient procurement staff or non-transparent bid evaluation (such as, the final decision of the evaluation committee should be submitted to the higher authorities for final decision); (iii) (iv) (v) Criterion The procurement risk assessment for the three assessed POEs (. 7 Zhonghui Yuanjing,. 9 Yantai Longjun, and. 10 Beijing Energy-saving) is rated moderate due to its poor organization and staffing in procurement activities, and lack of transparent bid evaluation and the higher authorities are making the final decision for the bid evaluation; The procurement risk assessment for Yantai Longjun (. 8) is rated moderate to high as the company has no staffing for procurement, unsuitable experience for the procurement, and no accountability mechanism; and The weaknesses for all assessed POEs are lack of ADB project implementation and management, which can be mitigated by means of strengthening capacity, such as trainings or workshops from experienced consultant/firm. Furthermore, I&G needs to provide trainings in project management and contract management towards the project implementation. A. Organizational and Staff Capacity Table 8: Assessment Results B. Information Management C. Procurement Practices Sources: PPTA consultant assessed and summarized, vember The overall procurement risk assessment D. Effectiveness 27. The overall procurement risk assessment is to. E. Accountability Measures OVERALL RATING 1 Zhongyineng to to to 2 Kaidi 3 Zhongjing 4 Lvzhou Dehan to to 5 Guozi Financial NA Leasing NA NA NA NA NA 6 Qidi Clean Energy to to to 7 Zhonghui Yuanjing Yantai Longjun High to High to High to High 9 TSINOVA Smart to to High to High Beijing Energysaving to to High Huanhui - - -

15 Appendix 1 11 Procurement Capacity Checklist This checklist works systematically through the procurement cycle identifying key requirements at each stage. I. Specific Assessment and Ratings Name of the Company Checklist filled by: Position: Tel/Mobile: A. ORGANIZATIONAL AND STAFF CAPACITY A.1. Is there a permanent properly staffed procurement unit in the IA? Number of procurement staff Position of the procurement unit in the company Name of the procurement unit head and years of working experience in procurement A.2. Are the number and qualifications of procurement staff sufficient to undertake the procurement under the proposed project? A.3. Does the procurement unit undertake procurement in accordance commercial practices in the sector? If the company is not an SOE, does the procurement unit have clear procurement rules and procedures? Please indicate a simplified full procurement procedures A.4. Do the commercial practices comply with requirements of national and provincial procurement laws and regulations? If the company is an SOE, does the procurement comply with the Law on Tenders and Bids? Has the procurement unit prepared procurement rules and procedures accordingly? B. INFORMATION MANAGEMENT B.1. Is there a referencing system for procurement files in the company? If yes, please indicate how the system is referencing (i.e., by date, by types (civil works, equipment, services, etc.), amount, etc.) B.2. Is there adequate equipment and personnel to administer the procurement records management functions? Does the procurement unit or company Archives Department administrate the records? The records are kept in e-file, hard copies or both? B.3. Does the procurement unit adhere to a document retention policy (i.e. for what period are records kept)?

16 12 Appendix 1 B.4. Is there a single contract file with a copy of contracts and all subsequent contractual correspondence? C. PROCUREMENT PRACTICES Goods and Works C.1 Does the procurement unit have a manual for procurement of goods and works? C.2 Is there a bid evaluation committee (permanent or ad-hoc) established within the IA? C.3 Is the decision of a bid evaluation committee final or subject to approval by higher authorities within the IA? C.4 Do the commercial practices applied by the IA comply with key procurement principles of open competition, economy, efficiency, fairness and transparency? D. EFFECTIVENESS D.1. Is contractual performance systematically monitored and reported? D.2. Does the agency monitor and track its contractual payment obligations? D.3. Is a complaints resolution mechanism described in national procurement documents? D.4. Is there a formal non-judicial mechanism for dealing with complaints? E. ACCOUNTABILITY MEASURES E.1. Is there a standard statement of ethics to which the procurement unit is required to formally commit? E.2. Are staff of the procurement unit required to declare any potential integrity violations during the procurement process? E.3. Is the performance of the procurement unit subject to annual audit? II. General Rating Criterion A. Organizational and Staff Capacity B. Information Management C. Procurement Practices D. Effectiveness E. Accountability Measures OVERALL RATING Risk

17 Appendix 2 13 Procurement Capacity Checklist for Zhongyineng (. 1) I. Specific Assessment and Ratings Name of the Company Zhongyineng (Beijing) Technology Co., Ltd Checklist filled by: Wang Shaojie Position: Manager of Procurement Division Tel/Mobile: e0401@zhongyineng.com A. ORGANIZATIONAL AND STAFF CAPACITY A.1. Is there a permanent properly staffed procurement unit in the IA? Number of procurement staff 2 Position of the procurement unit in the company Key Name of the procurement unit head and Wang Shaojie, 5 years of years of working experience in procurement experience A.2. Are the number and qualifications of procurement staff sufficient to undertake the procurement under the proposed project? A.3. Does the procurement unit undertake procurement in accordance commercial practices in the sector? If the company is not an SOE, does the procurement unit have clear procurement rules and procedures? Please indicate a simplified full procurement procedures A.4. Do the commercial practices comply with requirements of national and provincial procurement laws and regulations? If the company is an SOE, does the procurement comply with the Law on Tenders and Bids? Has the procurement unit prepared procurement rules and procedures accordingly? B. INFORMATION MANAGEMENT B.1. Is there a referencing system for procurement files in the company? If yes, please indicate how the system is referencing (i.e., by date, by types (civil works, equipment, services, etc.), amount, etc.) B.2. Is there adequate equipment and personnel to administer the procurement records management functions? Does the procurement unit or company Archives Department administrate the records? Propose needs Procurement plan shopping price comparison contract signing Procurement unit

18 14 Appendix 2 The records are kept in e-file, hard copies or both? B.3. Does the procurement unit adhere to a document retention policy (i.e. for what period are records kept)? B.4. Is there a single contract file with a copy of contracts and all subsequent contractual correspondence? C. PROCUREMENT PRACTICES Goods and Works C.1 Does the procurement unit have a manual for procurement of goods and works? C.2 Is there a bid evaluation committee (permanent or ad-hoc) established within the IA? C.3 Is the decision of a bid evaluation committee final or subject to approval by higher authorities within the IA? C.4 Do the commercial practices applied by the IA comply with key procurement principles of open competition, economy, efficiency, fairness and transparency? D. EFFECTIVENESS D.1. Is contractual performance systematically monitored and reported? D.2. Does the agency monitor and track its contractual payment obligations? D.3. Is a complaints resolution mechanism described in national procurement documents? D.4. Is there a formal non-judicial mechanism for dealing with complaints? E. ACCOUNTABILITY MEASURES E.1. Is there a standard statement of ethics to which the procurement unit is required to formally commit? E.2. Are staff of the procurement unit required to declare any potential integrity violations during the procurement process? E.3. Is the performance of the procurement unit subject to annual audit? Both, 5-10 years, by supplier (including contract, appendix, fax and letters exchanged, qualification documents) Ad-hoc Evaluation committee, annual auditing to all contracts II. General Rating Criterion Risk A. Organizational and Staff Capacity B. Information Management to C. Procurement Practices D. Effectiveness to E. Accountability Measures OVERALL RATING to

19 Appendix 3 15 I. Specific Assessment and Ratings Procurement Capacity Checklist for Kaidi (. 2) Name of the Company Kaidi Ecological Environment Technology Co., Ltd Checklist filled by: MA Long Position: Deputy Director of Procurement Division Tel/Mobile: , @qq.com A. ORGANIZATIONAL AND STAFF CAPACITY A.1. Is there a permanent properly staffed procurement unit in the IA? 33 (16 procurement staff, 5 staff for Number of procurement staff equipment technical monitoring, 6 staff for civil work tendering, 4 administrative staff and 2 chief leaders) Position of the procurement unit in the company Key division Name of the procurement unit head and YANG Hong (Also the VP of the years of working experience in procurement A.2. Are the number and qualifications of procurement staff sufficient to undertake the procurement under the proposed project? A.3. Does the procurement unit undertake procurement in accordance commercial practices in the sector? If the company is not an SOE, does the procurement unit have clear procurement rules and procedures? Please indicate a simplified full procurement procedures A.4. Do the commercial practices comply with requirements of national and provincial procurement laws and regulations? If the company is an SOE, does the procurement comply with the Law on Tenders and Bids? Has the procurement unit prepared procurement rules and procedures accordingly? B. INFORMATION MANAGEMENT B.1. Is there a referencing system for procurement files in the company? If yes, please indicate how the system is referencing (i.e., by date, by types (civil works, equipment, services, etc.), amount, etc.) company), over 10 years. All procurement staff has professional background, such as EPC procurement and project costs, it has confirmative regulations and procedures. Procurement list bidding documents advertisement receiving proposal proposal evaluation contract negotiation contract signing contract implementation and disbursement, the company regulations are designed based on industrial regulations, referenced by Excel Searched by Contract., Name of Supplier, Contract Ledger Records also

20 16 Appendix 3 B.2. Is there adequate equipment and personnel to administer the procurement records management functions? Does the procurement unit or company Archives Department administrate the records? The records are kept in e-file, hard copies or both? B.3. Does the procurement unit adhere to a document retention policy (i.e. for what period are records kept)? B.4. Is there a single contract file with a copy of contracts and all subsequent contractual correspondence? C. PROCUREMENT PRACTICES Goods and Works C.1 Does the procurement unit have a manual for procurement of goods and works? C.2 Is there a bid evaluation committee (permanent or ad-hoc) established within the IA? C.3 Is the decision of a bid evaluation committee final or subject to approval by higher authorities within the IA? C.4 Do the commercial practices applied by the IA comply with key procurement principles of open competition, economy, efficiency, fairness and transparency?, formulated regulations and assessment systems, electronic and hard copies are archived, Archives Department administrates and coordinates archivists. Both, most in 30 years, some only 10 or 5 years, all correspondence files along the procurement procedures and contract implementation are kept, established by technicians and procurement staff Approved by bid evaluation committee D. EFFECTIVENESS D.1. Is contractual performance systematically monitored and reported? D.2. Does the agency monitor and track its contractual payment obligations? D.3. Is a complaints resolution mechanism described in national procurement documents? D.4. Is there a formal non-judicial mechanism for dealing with complaints? E. ACCOUNTABILITY MEASURES E.1. Is there a standard statement of ethics to which the procurement unit is required to formally commit? E.2. Are staff of the procurement unit required to declare any potential integrity violations during the procurement process? E.3. Is the performance of the procurement unit subject to annual audit?, the procurement unit is required to commit strict regulations and internal control, pre-job training and specified in the employment contract., each bidding and procurement are audited (and check randomly as rechecking)

21 Appendix 3 17 II. General Rating Criterion F. Organizational and Staff Capacity G. Information Management H. Procurement Practices I. Effectiveness J. Accountability Measures OVERALL RATING Risk

22 18 Appendix 4 I. Specific Assessment and Ratings Procurement Capacity Checklist for Zhongjing (. 3) RIS K Name of the Company Zhongjing (Beijing) Environment Technology Co., Ltd Checklist filled by: CAI Miao Position: Manager of Procurement Division Tel/Mobile: Caimiao@esse.org.cn A. ORGANIZATIONAL AND STAFF CAPACITY A.1. Is there a permanent properly staffed procurement unit in the IA? Number of procurement staff 8 Position of the procurement unit in the company Key division Name of the procurement unit head and years CAI Miao, over 10 years procurement of working experience in procurement experience A.2. Are the number and qualifications of. All procurement staff has procurement staff sufficient to undertake the professional background, such as procurement under the proposed project? logistics and engineering management. A.3. Does the procurement unit undertake procurement in accordance commercial practices in the sector? If the company is not an SOE, does the procurement unit have clear procurement rules and procedures? Please indicate a simplified full procurement procedures A.4. Do the commercial practices comply with requirements of national and provincial procurement laws and regulations? If the company is an SOE, does the procurement comply with the Law on Tenders and Bids? Has the procurement unit prepared procurement rules and procedures accordingly? B. INFORMATION MANAGEMENT B.1. Is there a referencing system for procurement files in the company? If yes, please indicate how the system is referencing (i.e., by date, by types (civil works, equipment, services, etc.), amount, etc.), the procurement division has confirmative regulations and procedures Procurement list bidding documents advertisement (contract amount larger than RMB 300,000) receiving proposal proposal evaluation contract negotiation contract signing contract implementation and disbursement; for contract less than CNY 300,000, a price comparing report will be prepared by procurement staff to the Division and Manager for review and decide N/A, the company formulated procurement implementation guidelines Searched by Contract., Project Name, Procurement type (works, equipment, goods), signing date